PROBLEMS

CHAPTER 5
2. Present Value
$ 2250
8752
76355
183796

Years
16
13
4
12

Interest Rate
10%
8
17
7

Future Value
10339
23802
143081
413944

4. Present Value
$ 240
360
39000
38261

Years
2
10
15
30

Interest Rate
13.1%
9.5
10.5
5.4

Future Value
307
896
174384
483500

6. 280000 = 50000 (1 + r) ^18

r = 10%
Interest Rate is 10%

8. 27958 = 21608 (1 + r) ^7
Interest Rate(r) = 3.7%

10. PV = 700000000 / (1 + 0.085) ^20

= $ 136931471.8
Present Value is $ 136931471.8

12. FV = 50 / (1 + 4.5) ^102

Future Value is $ 4454.8

14. PV = 485000 / (1 + 25.9/100) ^67

Present Value is $ 0.10

18. FV = 2000(1+0.12) ^45

In 45 years future value is $ 327975.2
FV = 2000(1+0.12) ^35
In 35 years future value is $ 105599.2

20. 100000 = 10000(1+0.11) ^4

log10 = nlog1.11
n = 22.1 years

PROBLEMS
CHAPTER 6
2. When 5%
PV(X) = $ 45242.49
PV(Y) = $ 38965.29
Therefore X has higher Present Value
When 22%
PV(X) = $ 25334.88
PV(Y) = $ 25772.76
Therefore Y has higher Present Value
4. A = $ 4600
n = 15
r = 0.08
APV for 15 years = $ 39373.60
APV for 40 years = $ 54853.22
APV for 75 years = $ 57320.99
APV for forever = infinity

6. Each year = $ 65000

n=8
r = 0.085
1st year, PV = 59907.83
2nd year, PV = 55214.59
3rd year, PV = 50889.33
4th year, PV = 46902.33
5th year, PV = 43227.95
6th year, PV = 39841.43
7th year, PV = 36720.21
8th year, PV = 33843.51
Therefore Total PV = $ 366536.89
Present Value of the savings is $ 366536.89.
8. FV = 80000
n = 10

r = 0.065
A = $ 11128.38
Therefore $ 11128.38 must be deposited each year.
12. Shared Rate
7%
18
10
14

Number of Times Compounded

Quarterly
Monthly
Daily
Infinite

Effective Rate (EAR)

300120.53
334773.09
309446.71

14. Say the loan is $ 100000

First National Bank:
100000(1 + 0.0109) ^12 = 113915.88
= 13.92 %
First United Bank:
100000(1 + 0.067) ^2 = 113848.9
= 13.85 %
Therefore I would go to First National Bank for the loan.

16. FV = 1400 (1 + 0.048) ^40

= $ 9132.28
Future Value = $ 9132.28
18. PV = 45000 / (1 + 0.000301) ^2190
= $ 23279.47
Present Value = $ 23279.47

20. Monthly Payments = $ 4637.17

EAR :
618000 (1 + 0.0062) ^12 = 66558

36. 90000 (1 + 0.0083) ^12 = 99384.74

In two years = $ 198769.49

65000 (1 + 0.0083) ^12 = 71777.87

In two years = $ 143555.74
With $ 45000 signing bonus = $ 188555.74
Therefore I would prefer $ 90000 each year.
38. 2% of the salary
r = 0.1
g = 0.04
n = 40
G.PV = $ 701276.07

40. A = 225
r = 0.09
FV = 20000
Therefore n = 25.6 times
25.6 payments will have to be made

42. n = 10
A = 1000000
r = 0.09
Increases $ 400000 per year
Therefore in 10 years 400000 * 10 = 4000000
PV = $ 6417657.70
Present Value of the winnings = 6417657.70 + 4000000
= $ 10417657.7